Taking over a Building Contract - What do you need to know?

Our Legal Practice Director, John Perry, recently gave a presentation to members of the Master Builders Association of Victoria titled Taking Over Work – What you need to know before finishing another builder’s work. We have prepared the below article as a short form of the presentation given.

Whilst the presentation addressed several specific areas that builders should consider before entering into a contract to take over works, this article will touch on the three overarching themes, namely:

1. Scope of Work;

2. Protecting Yourself; and

3. Contract Price.

SCOPE OF WORK

The scope of works to be undertaken is the most fundamental part of a building contract. Without the scope, there is no clearly discernible building contract. As contract drafters, one of our key aims is to minimise ambiguity between parties.

Accordingly, the first thing to understand is the scope of works.

Ordinarily, with a green acre site or prior to work commencing, the scope of works can be worked out by reviewing the relevant plans and specifications.

However, when taking over works, the question of scope becomes a little more complex. For example, exactly what stage of progress has been achieved by the original builder? It could be that there are a number of defects in the existing works (whether patently obvious or latent).

The pertinent question therefore is: How do you work out the scope of works when taking over works? In our view, the best way to answer to this question is often by way of an expert report.

A properly briefed expert report can, in many circumstances, effectively identify the defects in the existing works (and if instructed, a rectification methodology) and what works are required to bring the works to completion.

After receipt of the expert report, the builder / owner / principal is in a good position, in conjunction with the relevant plans and specifications, to determine what works are required to bring the works to completion.

PROTECTING YOURSELF

With an expert report, the owner / principal and the builder are in a position to be properly informed (to the extent possible) as to the condition of the subject building. In our view, this is likely to reduce the likelihood of a dispute arising over the scope of works and payment for same at a later time.

From the perspective of an owner / principal, they will be more likely to understand exactly what works are being undertaken and what they are paying for.

From the perspective of a builder, the builder can refer back to the expert report to explain:

- what works are to be undertaken;

- why they are to be undertaken; and

- the cost of undertaking these works.

In addition, if say for instance a latent defect arises and the principal / owner / subsequent owner attempts to pursue the builder for same, the builder may be able to refer back to the expert report and scope of work to minimise their exposure by clearly setting out that this is a ‘new’ issue.

However, the unfortunate part of taking over works for the builder is even if the builder had no responsibility for a defect complained off, it is quite possible that they will be brought in to a dispute and be compelled to defend itself. The issue here is that an Owner simply may not be in a position to determine whether the issue was caused by the “First” Builder, or the subsequent Builder.

The actual extent of the liability and involvement in any dispute will of course turn on the facts of each individual case, however, a clearly report and scope of works will put the subsequent builder in a much better position to articulate their position.

CONTRACT PRICE

In light of the risk of being brought into a dispute at a later time, the builder should consider pricing in that risk. Of course, the owner / principal is likely to want the cheapest price possible.

In any event, the contract price is a matter for commercial negotiation. Just remember, when negotiating, that you should, and need to, understand the scope of works to be undertaken and the risks of works being taken over.

There are of course many other considerations that should be looked at by the parties where a builder is taking over works. The above article is merely a starting point of the matters to take into account.

If you wish to discuss the other considerations that could/should be taken into account, please do not hesitate to contact Perry Thomas Lawyers by telephone on 03 8375 9638.